We Have Been Used To Easy Money And Very Low Rates For So Long

A report from the Seattle Times in Washington. “If you read my colleague Mike Rosenberg, you already know that segments of the Seattle real-estate market are slowing. We have an apartment glut thanks to heavy investment in multifamily housing coming out of the Great Recession. Sales and inventory numbers for homes in King County are back to 2012 levels. Prices are dropping many places after record leaps in recent years.”

“Last week came further evidence: For the first time in about a decade, Seattle wasn’t among the top 10 markets for the coming year in the ‘Emerging Trends in Real Estate’ report by the Urban Land Institute and PricewaterhouseCoopers. Last year, we were No. 1.”

“A veteran asset manager quoted in ‘Emerging Trends’ says, ‘2019 will be a turning-point year. I think about the capital markets correction that is coming. We have been used to easy money and very low rates for so long. Now is the time to harvest, to hedge, to be cautious.'”

“What we know is that real estate is slowing. This boom has remade Seattle more dramatically than almost any since the Great Fire. It’s been a lightning rod for criticism, and not just from the social-justice warriors.”

“Too many classic Seattle three-story brick apartment buildings have been lost, diminishing lower-rent units for renters. Too many useful commercial buildings have been demolished for towers, annihilating affordable retail space and the human-scale delights of the city. Add in straight-up skyscrapers with no setbacks and little distance between them, plus loss of views toward the Space Needle.”

“On the other hand, the real-estate boom has been pretty good to Seattle, and not only in terms of tax revenues. Speculation is an element in rising housing prices, but demand was the big driver. Real estate and construction are significant employers. Seattle has been lucky, and made its luck. Now we’ll see whether what’s happening in real estate is a natural downshifting or something more.”

The Mercer Island Reporter in Washington. “Now is the time to make serious decisions regarding real estate. John L. Scott’s chairman and CEO J. Lennox Scott recently instructed home buyers to ‘put extra focus on October, which is the last great month for new monthly resale listings until March 2019.'”

“If you’re looking to sell your home right now, it’s important to price and stage right, with the assistance of a broker that’s in tune with the local market changes. Pricing a home like you would have in May will not bring success.”

“The seasonality of the market, paired with interest rates that are projected to go higher in 2019, could help drive buyers to make decisions sooner rather than wait for the given uncertainty. Now, there’s a bit more time to act strategically, and some buyers may be able to remain competitive even with offers that include home inspections and a home-sale contingency.”

From Reason Magazine. “Rents are mercifully beginning to decline in the high-cost, high-growth cities of the Pacific Northwest, thanks to urban construction booms that are adding new units at a rapid pace. Though places like Seattle and Portland remain expensive places to live, the trends show that the rules of supply and demand still apply to the housing market—despite the claims of NIMBY activists.”

“Portland and Seattle ‘are sort of the prototypical examples of basic economics in action in the housing market,’ says Igor Popov, chief housing economist for Apartment List. ‘In the last few years, they’ve had this record number of units come onto the market and it’s finally giving price relief.'”

“Portland added 4,419 unit of completed housing in 2016, a slight increase from the roughly 4,365 it added in 2015, which combined is more than all the housing units added in the five years prior to 2014, according to the Portland Housing Bureau’s 2017 annual report.”

“Seattle, meanwhile, added some 8,400 units of new housing between 2016 to 2017, up from about 7,600 a year prior, and about double the amount of housing units the city added in 2012, according to data compiled by Washington State’s Office of Financial Management. Seattle is tied with Denver for per capita construction spending on multifamily housing units, according to Apartment List.”

“As the number of apartment units being built has gone up, average rent across these cities has actually started to decrease. These price declines may not even capture the entire picture, as landlords feeling squeezed by falling prices and rising vacancy rates are starting to offer sweeteners to potential tenants.”

“A June Seattle Times story found some 112 apartment buildings offering periods of free rent to new renters, with the average offer being a one-month pass. Other buildings were offering Uber Eats credits, Amazon gift cards, and memberships at nearby gyms to any tenants willing to move in, with some of these gift card deals reaching as high as $2,500.”

“It’s the same thing in Portland, with some developers offering as much as eight weeks of free rent, along with $1,000 Amazon gift certificates and health club memberships.”

At this moment, houses in Seattle are losing $200+ per day in value. It’s much more for those on the higher end. This will accelerate. It’s only visible in hindsight, since the sales numbers don’t come out until after the fact.

Why do Yahoos think it is a good time to buy if future prices are expected to drop. Wouldn’t this be an opportune time to sit on your hands?
——————————————–
Mortgage rates jump past 5%, signaling more home price cuts ahead
Diana Olick
CNBCOctober 9, 2018, 8:55 AM PDT

– The average rate on the 30-year fixed sat just below 4 percent a year ago, after dropping below 3.5 percent in 2016. It just crossed the 5 percent mark, according to Mortgage News Daily.

– While more people think now is a good time to buy a home, according to a monthly sentiment survey from Fannie Mae, more people also think mortgage rates will go up.

It is because they are stupid. I know that isn’t PC but lots of bad decisions are created by a false sense of “urgency”. Buy now before it is too late. When folks see interest rates going up they see affordability disappearing and conclude they should buy while they still can.

They forget that if they can’t buy, more or less nobody can buy and the next step is prices come down.

“Too many classic Seattle three-story brick apartment buildings have been lost,
Too many useful commercial buildings have been demolished for towers,
straight-up skyscrapers with no setbacks…”

In other words, medium-sized cities are being turned into Manhattan. I still stand by my suggestion that these mega-corporations should spread out over the whole country to use the existing infrastructure. Why not go back to factory towns — except this time the factory could be a 2000-person division of Amazon or a 3000-person Google office, or a collection of start-up business owners doing full time work at home. Even low-population po-dunk towns can be pretty vibrant.

“…I still stand by my suggestion that these mega-corporations should spread out over the whole country to use the existing infrastructure…”

I work for a major Fortune 100 company with similar issues and have posed this very question for years. With today’s fast internet and very sophisticated collaboration software, there is zero technical reason why we need to all hoof it into a central high rise ever day.

After all, we are not a bunch of coal miners who have to show up at the mine shaft with our shovels at the 8am whistle.

We all spend time commuting in our cars which just clog up the freeways and could be better used doing real work.

The best answer so far is that it is a power and control mindset with the management.

I think part of the answer is that the uber rich experience the frills and benefits of living in these mega cities very differently than the worker bees that make every thing hum. They are so far detached from chagrins of blue collar workers, retail workers, tech workers, or even white collar professional that they haven’t found it necessary to make any changes. Seattle’s head tax that was rolled back after one month might have tipped the scales toward a corporate dispersion, but it was never to be.

Just like 2006 in my area, a Mexican Standoff is evolving. By this I mean sellers reluctant to reduce prices and buyers concerned about falling prices. Results in reduced activity. Eventually some prices reduce, inventory starts to build and the issue is forced. Once news gets out about increasing foreclosures, panic sets in then snowball starts to roll down the hill. Not complicated and is just history repeating itself. Really just human nature at work.